To decision-makers at many private companies, directors and officers insurance may seem like an unnecessary type of coverage. Many people believe that this insurance is primarily designed to protect large, publicly held companies. In reality, though, directors and officers for private companies is often an essential type of coverage, given the following risks.
Significant Leadership Involvement
The directors and officers of private companies often have substantial stakes in the company and perform a wide range of activities on its behalf. Directors and officers may have money personally invested in a business, and in smaller companies, these professionals may be directly responsible for a wide range of tasks. This can leave these individuals vulnerable to costly claims.
Lack of Outside Guidance
While larger, publicly held companies can often afford to hire specialists and consultants, emerging private companies may handle most undertakings independently. The directors and officers of private companies may directly supervise or handle many legal and financial matters, which can open the door to claims involving errors or negligence.
Private companies may also have more limited assets and resources. As a result, any legal claim may result in burdensome costs. Simply defending a wrongful claim may prove financially challenging for smaller private companies.
Mitigating These Risks
These considerations show why directors and officers for private companies is often a necessary investment. Private companies can face the same level of exposure as public companies, along with steeper financial consequences. In most cases, a carefully chosen insurance policy is the only way to fully address these threats.